Tom Dorsey Enterprises

Date: 22 May 2017

Tom Dorsey Enterprises

tomdorseyenterprises.com

Mutual Funds

Disclaimer – Any and all stocks, funds or other investments ideas must be reviewed by each individual investor to determine if the investment is right for their portfolio, at that time, their investment goals, risk assessment and other variables per person. This article discusses the processes each investor should go through to make the right decisions.

Earlier I have stated that mutual funds are a great place for beginners to start.

A mutual fund is created by an investment company with a senior investment manager and a team of researchers to find the best stocks, bonds or other instruments to meet the goals spelled out in the prospectus. Some funds focus on the general market, the DOW Jones Industrial Average, the S&P, or sectors like the financial, tech or retail sectors. The bottom line is these funds have a purpose to make money and focus, to find the best investment in various locations of the markets.

The fact that each fund has a professional manager and research team working for you as you pool your money with many other investors is a great benefit. You don’t have to make all the decisions, just which mutual fund you want to work for you.

By definition, - A mutual fund is an investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by money managers, who invest the fund's capital and attempt to produce capital gains and income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.

Mutual fund units, or shares, can typically be purchased or redeemed as needed at the fund's current net asset value (NAV) per share, which is sometimes expressed as NAVPS. A fund's NAV is derived by dividing the total value of the securities in the portfolio by the total amount of shares outstanding.

(as of May 2017) Worldwide, nearly $28 trillion is invested in mutual funds. As the number of mutual funds has grown, so too has their scope and strategies. For example, as of 2013 in the U.S., there were 1,329 U.S. equity funds, 1,345 global funds and 1,866 total return funds, 594 investment grade bond funds, 225 high-yield bond funds, 270 global bond funds, 214 government bond funds, 143 multi-sector funds, 560 state and national municipal bond funds, 382 taxable money market funds and 173 tax-free money market funds.

In a general mutual fund, the fund can have between 75 to 250 different securities. Some more, very few have less. A mutual fund’s success is based on the return in the market. There one thing for sure, every investment company will take out their fees to pay their employees and their profit base on the fees spelled out in the prospectus.

When an investor purchases shares in a mutual fund, he is usually assessed a fee known as an expense ratio. A fund's expense ratio is the summation of its advisory fee or management fee and its administrative costs. Additionally, these fees can be assessed on the front-end or back-end, known as the load of a mutual fund. When a mutual fund has a front-end load, fees are assessed at the time of the initial purchase. For a back-end load, mutual fund fees are assessed when an investor sells his shares.

I will tell you to learn to look at the fees, but don’t get wrapped up by them. What you want to do is review the annual growth of your investment. If the growth of your account is 10% or higher, that is good. You can’t control the fees in a fund, you can move your money to a fund that is growing your money. That is your real goal.

I will highlight two funds for teaching points, but again, these may or not be right for your portfolio.

Invesco at invesco.com has a fund Invesco American Franchise Fund (VAFAX) that was created on 23 June 2005. Since inception of the fund it has average 8.66% growth of the fund. With the down turn in the market through 2007-09, the overall average is good. The last 5 years the fund has grown 12.64% per year and the last year up 14.14%. Will it continue, I will not venture a guess, but the objective for the fund is to seek long-term capital appreciation. The growth strategy aims to outperform by finding dynamic and durable American companies growing faster than the economy.

The second fund is the Cornerstone Total Return Fund Inc. (CRF). This fund provides a dividend return to investors each month of $0.2289 per share, with a price of $16.61 as of the close on May 22, 2017. That equates to a 16.54% annual return (much better than 10%). The dividend can be raised or lowered by the board, which will push the stock price up or down. If you are focused on growing your portfolio, you can set the automatic reinvestment process and each month the investment company will buy shares valued at the same price of your dividend in your account.

The value of a mutual fund can help grow your account, which is your goal. Some investors will only invest in mutual funds, others will start here and want to expand in other investment strategies. Both are good, based on your goals. The only mistake you can make is by not starting and not investing every month. Get started.